Firms helping pensioners unlock money from their homes need to improve the quality of advice they are giving, the City watchdog said yesterday.

The Financial Services Authority said the advice given by many mortgage intermediaries selling lifetime mortgages was unacceptable, particularly among firms where the products did not make up a significant part of their business.

The regulator said there had been improvements in the quality of advice given during the past year, but stressed that more still needed to be done.

Lifetime mortgages enable retired people to borrow a lump sum against the value of their home, with the money not repaid until they die or sell their property. Interest is often added on to the total amount owed.

The FSA, which carried out a secret shopping exercise at 23 firms, said the advice given by the sales forces of large product providers and intermediaries specialising in the area was now generally acceptable.

But it said intermediaries that only occasionally sold lifetime mortgages tended not to have developed the necessary knowledge, skills and controls to give customers the quality of advice the FSA required.

Overall, the FSA found that, in a third of cases where clients could have been eligible for means-tested benefits or grants, advisers did not pay sufficient attention to the issue.

Advisers at all firms also consistently failed to explore in depth the impact of taking out a lifetime mortgage on their clients' future options.

Some advisers also recommended that their clients created arbitrary, and sometimes excessive, rainy day funds, often without recording the rationale for doing so.

Clive Briault, managing director of retail markets at the FSA, said: "We remain concerned over the variable quality of advice provided in this market." The regulator said it was intervening where the standard of advice was unacceptable.